When you buy a new vehicle, you will be offered a warranty. There are factory warranties and extended warranties. Is the extended warranty worth it in the end? It’s difficult to say; in some cases it pays off in spades. In others, it wasn’t. Perhaps the peace of mind is worth it for many.
Extended warranties are a major point of contention among financial planners, mechanics, industry experts, and those who like to count their pennies. Some say the payout should a major repair occur is worth it. Others contend that the extended warranty is nothing more than a total waste of money.
Yes, the extended warranty on a vehicle could help if the head gasket blows in the car’s sixth, seventh, or eighth year. Then again, maybe nothing will go wrong! That’s the risk. Even worse, many extended warranties have tricky regulations and policies that exclude many costly repairs.
These warranties don’t come cheap. In fact, they’re pretty notorious for being more costlier than other types of financial protection plans. It is reported that an estimated 55% of people don’t even touch the policy, letting it fade away into the collection of insurances and protections never used.
Only a quarter of people said they were happy enough with the extended warranty to buy another one. Then again, 25% is a sizable amount for people who did luck out and win on the deal.
People were mostly upset that the costs associated with the later life repair of the car were actually less than the cost of the full warranty. Not to mention, these extended warranties don’t typically include maintenance repair, so your brakes, tires, and oil changes don’t get paid for by the external party.
Many financial planners instead recommended setting aside a special amount of funds just for car repair. That way, if something does go wrong, you’ll be spared the sudden expense, which is what most people fear.
Tip: You might get away with throwing the fees on a credit card as well, but that depends on your situation.
What is an Extended Car Warranty? The Definition.
In order to know if an extended car warranty is worth it, it’s important to discuss what exactly one is in the first place.
Let’s imagine the scenario. You’re at the car lot, looking at the deals and steals out there. There are some models that look promising, but they’re used. The salesperson says, “Hey, how about an extended warranty? Does that sweeten the deal?”
It might! It may not. It’s hard to say.
For example, if you’re buying a vehicle that’s five years old, problems will soon be on the horizon. You’re buying a vehicle almost at its “middle age.” Most vehicles only make it twelve years out there on the open roads. After that, it’s RIP. They’re off to the junkyard.
The extended warranty attempts to put some time in between that happy and joyous purchase moment and the moment the car’s time comes. The extended car warranty is legally a vehicle service contract. It’s like a plan you can choose should a special list of repairs occur. A lot isn’t covered, by the way.
What do Extended Warranties Normally Cover?
Today’s extended warranty covers a selected list of problems and repairs, but that list is by no means exhaustive. There are plenty of problems that happen that simply are not covered by the extended warranty. People who land on the list feel lucky. Everybody else feels cheated.
The most important point to remember about extended warranties is that they do not cover everything. Don’t get fooled by fast-taking salespeople who only want to pull the wool over your eyes. These warranties are rarely a VIP total-access pass to all-inclusive car repair fee coverage.
The original factory warranties are more comprehensive in general. They provide a greater amount of coverage when it comes to what can go with the vehicle. Many credit union concierges agree on this point.
The same financial professionals remind consumers that routine maintenance is not covered under most extended car warranties, unfortunately.
Be careful! This means that if the mechanic mentions oil change, tire rotations, belts, or brakes, your repair most likely isn’t covered. You’ll be paying for that out of pocket.
What about roadside assistance? That’s almost never part of the deal. Roadside assistance is in its own category. We would recommend checking with your insurance company rather than with an extended warranty service provider.
This is one of those cases where it pays to do your homework. Read the fine print with a magnifying glass and study that list closely! The legalities explain exactly what (and what is not) covered on your extended car warranty. If you need help, check with a friend who knows cars, law, or both.
The Average Cost of an Extended Car Warranty
So far, we’ve defined extended car warranties. We’ve painted pictures of situations where the extended warranty was worth it, and we’ve identified cases where the extended car warranty is not worth it, too.
What’s the price tag? Consumers deserve to know.
Before getting to the price, we should let you in on a little-known secret about extended car warranties. The dealership itself is probably profiting off the deal. As they say, there’s no such thing as a free lunch. Everything comes with a cost. The car dealership is marking up the extended warranty for more money.
If you’re getting this vibe, then you should be able to negotiate a little. If that’s seemingly out of the question, then perhaps researching third party extended car warranty providers is in order. Even if you pass on the deal at the auto lot, you may be able to pick up an extended warranty down the line.
The adage is true: you get what you pay for. When it comes to extended car warranties, this is factual as well. You have to really read the policy’s fine print to know if you’re getting your money’s worth. And the worst part is that if you’re not using the service, you’re basically losing money.
You are essentially betting that the car will have problems when you buy an extended warranty. The real question is, at what cost?
Maybe the dealership told you a car would run you $12,000. They ask extended warranty? You’re inclined to say yes, especially when talking about used cars. Then, all of the sudden, the monthly payment is revealing you’re paying $15,000, maybe $16,000 for this vehicle. How?
That’s the average price of the extended warranty, $1,000 to $4,000. Are you hoping to roll that into the loan for convenience sake? Well, the loan provider is happy to help so long as they can tack some interest and fees onto the bottom line.
Just like insurance, a deductible could come into the equation. You could be required to pay per repair or per warrant service visit. What does that mean? It means it might be like if you go to the mechanic for transmission, electrical, and the head gasket, you’ll be charged three times or once.
Should I Buy Extended Warranty on a New Car? On a Used Car?
When you want to know if buying the extended warranty for your car is worth it, you may need to consider the type of purchase you are making.
For instance, if you are buying a new car, then you’re not likely to even use the warranty, especially if you’re a cautious car owner with a meticulous repair schedule.
If you are the type of person who changes cars often, say less than every seven years, then the extended car warranty simply is not for you. Don’t waste your time and money.
However, if you’re buying used cars left and right, then this solution may start to make more sense. When you’re buying a car that’s already seven, eight, or nine years old, you’re riding that line between a great value used car and “send that rust bucket to the junkyard, STAT.”
These extended warranties make the most sense when you’re buying something used that is no longer covered by the regular factory warranty. If you have cash tucked away for car repair, experts assert, the extended car warranty may still not be worth it
It could be cheaper just to pay for the repairs as they occur. That being said, if you know that a surprise repair is not in the cards as far as the monthly budget is concerned, then the payment rolled into the monthly payment may just in face be worth it in the end.
How Long Do Extended Car Warranties Last?
How long are these extended car warranties good for? It depends on the terms agreed upon in the contract.
Some warranties are good for 36,000 miles. Others are pushed past 60 months, 60,000 miles, or beyond.
This may be another area of consideration if you are trying to determine if an extended car warranty is right for you. You might also consider time or mileage if one variable is ignored. In other words, if you are going to drive 36,000 miles in a single year, the extended car warranty may not be worth it.
If that mileage will get you through three or four years, the deck may be stacked in your favor.
Knowing the benefits and drawbacks of extended car warranties helps consumers make an informed decision.
What are the Benefits of Buying an Extended Car Warranty?
People love extended car warranties when they work out the way they are sold, which doesn’t happen that often. When it does, though, it may seem like the extended car warranty is worth it.
The benefit of extended warranty items is that they’re covered in a special way so that the consumer may not have to shell out big bucks when something goes majorly wrong. If you have a deductible, there may still be some fee to pay, but it’s less than the total bill if you’re entirely covered.
Many people go for an extended warranty simply because they want to rest easy knowing (or believing) that a major car repair bill won’t take them by surprise if it comes flying out of left field.
It’s like car insurance in some ways. You’re not always happy you’re paying for it, but if you’re in a wreck, you’ll feel better when you get a check. If you’re worried about your car a lot, then this insurance might help take the edge of that concern.
Why are People so Against Extended Car Warranties?
The critics claim that an extended car warranty is not worth it. What makes them say that?
They are against them because many people don’t use them often enough. It sounds great on paper to protect yourself, but are you protecting yourself against something that’s statistically highly unlikely? That may not be a good way to invest your income.
Sometimes the warranties between the factory-issued and the extended overlap. You don’t need to pay for double coverage.
Limited coverage is the other problem. These extended warranties don’t cover it all. You could pay the money for the extended warranty services and still be out thousands when the car requires “routine maintenance” or some other repair that isn’t covered.
You’re not out of options, though. If you’re buying a used car, for example, you could just follow theuse it-and-lose-it plan. In this situation, you use your car until it can’t be used anymore. If your vehicle has a major meltdown on the side of the expressway, you just send it to the junkyard.
Collect the cash from the junkyard company, and move on with your life. It can be that easy.
Are extended car warranties worth it in the end? You be the judge.